Final answer:
The major drawback of using venture capital is that it may result in the original business owners losing a significant portion of their control over the company due to the equity stake taken by the venture capitalists.
Step-by-step explanation:
One of the drawbacks of using venture capital is that venture capital firms may ask for a high stake in your business. This is because venture capitalists are private investors who provide capital to companies with high growth potential in exchange for an equity stake. They are often involved in the management and strategy of the company to ensure their investment is well-managed and can keep a close eye on the company's operations, reducing the problems associated with imperfect information.
Unlike traditional loans, venture capital does not involve making regular interest payments. Instead, venture capitalists gain a level of control over company decisions due to their substantial ownership. This ownership stake can sometimes be a significant portion of the company, which means the original owners might have to give up some control and decision-making authority over their business.